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Client Briefing: Compliance, Conduct and Risk Bulletin September 2015

1. What does the Mortgage Market Review (MMR) mean for lenders

Lenders are fully responsible for assessing whether the customer can afford the loan, and they have to verify the customer's income. They can still choose to use intermediaries in this process, but lenders remain responsible.

Lenders are still allowed to grant interest-only loans, but only where there is a credible strategy for repaying the capital.

There are transitional provisions in the MMR that allow lenders to provide a new mortgage or deal to customers with existing loans who may not meet the new MMR requirements for the loan. The borrowing can not exceed the amount of their current loan, unless funding is required for essential repairs. The decision on whether or not to lend in these cases remains with the lender.

2. Legal & General to raise awareness about Mortgage Credit Directive (MCD) with new tool

The financial services company, Legal & General, has launched its new Mortgage Credit Directive Guide and Mortgage Credit Directive Matrix. The guide gives brokers an overview of what the MCD means to them, whilst the matrix aims to raise awareness of the MCD regulation, and to help advisers keep track of regulatory announcements ahead of the new rules coming in to force on the 21st March 2016.

Although the final deadline is in March, firms can elect to adopt a majority of the regulation from the 21st September 2015. Legal & General’s MCD Guide and Matrix will include details on when lenders are planning to adopt the new MCD rules, as well as information on what the rules are and which products they apply to.

3. Citizens Advice: A million at risk of repossession

New research from Citizens Advice has shown that almost 1 million people are at risk of having their homes repossessed because they have no way of paying off their interest-only mortgage.

The research shows that 934,000 people who have interest only mortgages have no plan to pay it off when the term ends. This means many people would have to sell their homes or get into further debt, and may risk having their homes repossessed.

Many people who spoke to Citizens Advice about their interest only mortgages claim that they were not made aware that they would need to pay capital at the end of their term. The average amount owed is estimated at £71,000.

The regulations around interest only mortgages changed in 2012, and were not available without a viable repayment plan. Citizens Advice believes the people who were sold an interest only mortgage before the new regulations need more support.

The FCA has called on lenders to contact borrowers with interest only mortgages and advise them on repayment plans. Only 30% of lenders have so far responded to this request.

The FCA’s thematic review into early arrears management in unsecured lending will focus on the early stages of the collections process, including how customers are treated by lenders when they first experience arrears and payment difficulties.

7. FCA’s Thematic Review on unauthorised transactions

The FCA’s thematic review into unauthorised transactions has found that firms generally are making good efforts to reach fair judgments when handling claims for unauthorised transactions.

The FCA has stated that they expect firms to review their report to ensure they fully understand the legal and regulatory responsibilities for dealing with unauthorised transactions and to amend their approach where necessary.

The FCA has commissioned independent consumer research the results of which may interest firms.